21 minute read
I Cloud Pipe Dream
By Kenrick Cai
CONTRARIAN • INNOVATION / CLOUD 100
Photograph by Jamel Toppin for Forbes
Cloud Pipe Dream
Let others worry about what it all means. FIVETRAN is proving there’s a fortune to be made just by piping data from place to place.
O
On a brilliant summer day in August 2021, George Fraser was trying to relax at his family’s lakeside cabin deep in the woods of Wisconsin. Instead, the CEO and cofounder of Fivetran was worrying about his job and the company he had spent nine long years building with his childhood friend Taylor Brown, whose family also summered in the same patch of northern pines.
The two had a great idea: Help companies gather data from all sorts of disparate sources—Twitter mentions, credit card transactions—then charge them to funnel it to a big-data analytics firm like Snowflake or Databricks, which could, ideally, tell them what it all meant. Fraser and Brown had gone through Y Combinator together. They had raised about $160 million. They had spent countless hours sweating the technical details. But they still didn’t have a product designed for large companies.
Long-Term Relationship
Fivetran cofounders George Fraser (left ) and Taylor Brown’s families have been friends for four generations. “My great-grandparents gave his grandparents for their wedding this frog doorstop,” Brown says. “It’s a weird gift , but we now have it as our [company] mascot.”
One of Fivetran’s board members was Bob Muglia, who had been CEO of Snowflake. Muglia knew a thing or two about the stakes. He recalls that “Steve Ballmer beat the crap out of me” after he lost enterprise customers to Oracle while a president at Microsoft. (In 2011, Satya Nadella, Microsoft’s current CEO, replaced Muglia.) He spent five years building Snowflake but was shown the door just a year and a half before the company had one of the largest IPOs in Silicon Valley history. Now he was warning Fraser that time was running out. “I just railed on them,” Muglia says. “I said, ‘Damn, there’s no product here.’”
Seated behind a desk that had belonged to his great-grandfather, who had been president of Chicago Title and Trust starting in the 1930s, Fraser stumbled upon a decidedly old-school solution to his problems. He would buy his way to viability. HVR, a competitor located in San Francisco, just across the bay from Fivetran’s Oakland headquarters, had been beating them to enterprise deals. He’d heard through the tech grapevine that it was available to buy for $700 million—but only if he could line up a bid before the end of the week.
The deal would get them enterprise revenue and a product they could then work to perfect. The problem was that Fivetran, valued not much higher at $1.2 billion, did not have the cash. But Fraser did have a lot of fans in Silicon Valley— and a huge reserve of brute force persistence.
“Most folks, after several years in the wrong direction, will completely shut down the company and go elsewhere,” says Y Combinator president Geoff Ralston, who endearingly counts Fivetran as one of the ultimate “cockroaches” out of more than 3,800 startups that have gone through Y Combinator. “What was different about these guys is they never believed they were at a dead end.”
Fraser dialed up five blue-chip tech investment firms, including San Franciscobased Iconiq Capital and New York’s D1 Capital Partners, on a Saturday and told them he needed $565 million to bankroll the deal. Within 72 hours, all agreed to wire the money. “It was a bit of a rabbit out of a hat,” Fraser says. “The business leapt forward by a couple of years.”
The transaction upped Fivetran’s value to $5.6 billion, but HVR’s roughly $30 million of revenue from large companies with big tech budgets was the real prize, giving Fivetran more solid footing than many of its peers. Many of these companies, including direct competitor Airbyte (valued last year at $1.5 billion despite earning less than $1 million in revenue), say they are now considering ways to conserve cash. “We don’t have that problem because our multiple is not that crazy and revenue has grown so much,” Fraser says.
The company, which lands in 27th place on this year’s Cloud 100 ranking (the full list will be published tomorrow), forecasts $189 million in revenue this fiscal year (ends January), more than double last year’s figure. It now counts JetBlue, Forever 21 and chicken chain Nando’s among its customers. Forbes estimates the two cofounders each own a tenth of the company, putting their net worth at about $500 million apiece (we apply a 10% discount for private companies). Martin Casado, a partner at VC firm Andreessen Horowitz, which was a lead investor on Fivetran’s last three funding rounds, touts its market lead in data pipelines as “unassailable.”
The top selling point? Ease of use. “It’s the most brain-dead simple thing on the planet to set up,” Muglia says. But that simplicity belies a great deal of complexity behind the scenes. Originally the product funneled data once a day, at midnight. Fraser made a daily ritual of staying up and monitoring the pipes. If anything broke—and early on, “things were breaking left and right”—he would spend the next few hours fixing it like a plumber. “It’s very rare that you have someone as smart as George working on a problem as mundane as this,” says Casado, the investor. (Among his other accomplishments, Fraser has a Ph.D. in neurobiology from the University of Pittsburgh.)
While Fivetran’s war chest—it still has about $200 million in cash on hand—may seem large enough for it to survive a venture capital winter, Fraser says he plans to raise another funding round within the next two years regardless of market conditions; after that, he plans to take Fivetran public. Failure is not an option—partly because of the small-town pressures of their tiny Wisconsin cabin community.
HOW TO PLAY IT
By John Buckingham
Despite its stock being off more than 20% in 2022, cloud investors should focus on Microsoft, one of the leaders in the space. Fiscal Q3 revenues for Microsoft Cloud, which includes Azure, Office 365 Commercial and parts of LinkedIn, jumped 32% to $23 billion, nearly half of total company revenue. With a gross margin of 70% on the Cloud biz, cash is raining from Microsoft’s skies. Even better, Redmond’s finest funneled $12 billion to shareholders via buybacks and dividends in the most recent quarter while maintaining a cashrich balance sheet. The pullback this year, we think, makes MSFT a reasonably priced stock with terrific growth potential.
John Buckingham is Principal and Portfolio Manager of the AFAM Division of Kovitz Investment Group and editor of The Prudent Speculator.
FINAL THOUGHT “IT IS A VERY SAD THING THAT NOWADAYS THERE IS SO LITTLE USELESS INFORMATION.”
—Oscar Wilde
• COVER STORY •
TRENDSETTERS
Egypt’s Oriental Weavers was taken over by the second generation of the Khamis family, spearheaded by sisters Yasmine and Farida, in 2020. They’re striving to build on the legacy of their father, Mohamed Farid Khamis, while continuing to be a global player in the rug and carpet business.
BY SAMUEL WENDEL
IMAGE FROM SOURCE FORBESMIDDLEEAST.COM
Yasmine Khamis, chair of Oriental Weavers, and Farida Khamis, deputy chair of finance at Oriental Weavers.
Whether
it’s in a home, office, or hotel, the rug underfoot can easily be an afterthought—something Egypt’s Oriental Weavers has sought to correct.
“Over the last 15 years, we’ve tried to change the rug from being a necessity in the room setting to being a fashion item,” says Yasmine Mohamed Farid Khamis, chair of the multinational rug and carpet manufacturer.
That’s one reason why every minute, the company sells an average of 48 rugs and carpets—roughly 69,120 units every day. The result is strong revenues—roughly $600 million in 2021—and a 16% share of the world’s carpet market, according to the company. Founded by Egyptian businessman Mohamed Farid Khamis in 1979, Oriental Weavers is considered one of the largest machine-made rug and carpet manufacturers in the world, with factories in Egypt and the U.S. Today, as part of the Orientals Group, the company, which produces 114 million square meters of carpet annually, exports over 65% of its floor coverings, with the U.S. its largest market and IKEA its largest customer. As of August 2022, the publicly-traded company had a market cap of $240 million.
Khamis oversaw this rug empire until his death in 2020, leaving his three children to help guide the family businesses. Yasmine, his eldest, was appointed chair of Oriental Weavers, the flagship company, in October 2020. Her sister Farida also sits on the board and serves as deputy chair of finance, while their brother Mohamed is a board member too. Additionally, Farida also chairs the family’s petrochemicals and education businesses. As this new generation shepherds this storied Egyptian firm, Oriental Weavers is building on its legacy to remain an industry leader and trendsetter.
A key focus today is modernizing the business and introducing fresh ideas. “We’re really working on shaping and changing the culture of Oriental Weavers,” says Yasmine. That includes bringing new talent into the workforce their father built—he was a proponent of cultivating lifelong employees that knew the business inside and out. “We have a lot of people who are extremely loyal,” says Yasmine. “They really are the founders.” But times are changing, and the company must contend with a competitive industry landscape, with plenty of exports coming from Turkey, India, and beyond. “The rug business has become a very competitive one,” notes Yasmine. “There’s a lot more supply than there is demand in the world.”
That’s seeing Oriental Weavers concentrate on lean manufacturing and operational excellence, including a push to digitize its business. In 2021, the company implemented an enterprise resource planning system, and it’s now looking to introduce more digital tools in retail stores. It’s also worked with McKinsey consultants in recent months. This all comes as part of a new strategy for the coming three years, with a focus on profitable growth. Oriental Weavers has always enjoyed growth, but Yasmine notes that her father was hungry to increase market share; now, profitability is now the emphasis. Meanwhile, Farida
Yasmine Khamis
reports the petrochemical business and education segment are undergoing similar updates. “The vision is to continue his legacy, to modernize, and to continue growing without giving up on his dreams,” she says.
So far, Oriental Weavers has performed well under the second generation’s watch. The company’s 2021 revenues were up roughly 20% over the year prior, with net profits at about $62 million, a rise of 8.9%. “Last year was a phenomenal year in terms of retail, in terms of revenue, in terms of profitability,” says Yasmine. “We had some of the highest production efficiencies we’ve had in our history.” Despite supply chain challenges, the company enjoyed soaring demand. With the pandemic and remote work sequestering people at home, many in markets like the U.S. and Europe filled time with shopping. Accordingly, home furnishings were a hot item.
To meet that demand, Oriental Weavers pushed to improve production capabilities so that capacity wasn’t wasted. Simultaneously, it continued developing its product portfolio, part of a strategy of constantly reinventing its wares to appeal to customers. On that note, as its rugs are machine-made, the company can offer more affordable pieces compared to handmade counterparts. The ultimate goal is getting customers to swap rugs every three to five years, with Yasmine comparing Oriental Weavers to a Zara or H&M. “Basically, our rugs are a fashion item,” she says. “It’s a fraction of the price, but no one can tell the difference.”
One longtime client is Sobel, a rug distributor in northern Italy that sells to chains, shops, whole-sellers and beyond. “We need a wide variety of products for the different customer types, with a range of qualities and prices from cheap to medium level,” says Francesco Giordano, Sobel’s owner. That’s something Oriental Weavers provided, leading it to become a key supplier for the distributor.
That said, demand has since normalized, with consumers shifting spending towards travel and entertainment in 2022, while more global turmoil has brought fresh challenges. That has the industry operating in “survival mode,” says Yasmine, which underscores the focus on changing products and making them more affordable to spur sales. The company also recently announced that it’s selling its Chinese unit. Despite a gloomier outlook,
the company appears to be making the best of it. “Oriental Weavers’ performance for 2022 has been positive so far considering many challenging circumstances in the local and global market,” says Marina William, an equity research analyst with Egyptian investment bank Al Ahly Pharos. “We can see sales picking up strongly for the first half of the year on the back of both prices and volumes.” The export market has been particularly challenging, with inflation altering consumer spending behaviors, adds William, while noting that the company has managed to redirect volumes towards the local market, although this is also challenging due to the Egyptian pound’s devaluation. Still, the analyst expects Oriental Weavers to see some relief in the second half of the year, as global commodity prices cool down,
All of the company’s rugs are machinemade, meaning they can offer more affordable pieces compared to handmade counterparts.
although further devaluation of Egypt’s currency could impact domestic sales. Against that backdrop, Oriental Weavers has a goal of growing 11% in the export market in 2022, while also planning to open new showrooms in Egypt.
As for future outlook, the company has always found new ways to grow, says William, either by penetrating new markets or by expanding client bases in existing regions. “Their ability to keep up with the current market demands and dynamics will play a crucial role in their growth for 2023 and beyond, as their newly established online platform contributed to first-half sales by nearly 20%,” says William. On that topic, e-commerce is one of several industry trends Oriental Weavers must contend with. Another is sustainability, which Yasmine reports is becoming important in markets like the U.K. and Scandinavia. On that front, in 2021 Oriental Weavers launched a new product line made entirely from recycled, reused, and traceable materials, while in 2017 it secured a green economy financing facility from the European Bank for Reconstruction and Development to help switch to more energyefficient machines in its facilities.
Ultimately, such developments are another sign of how Oriental Weavers is evolving. Looking back, the Khamis family trade could’ve easily been something else, thanks to the entrepreneurial drive of its patriarch. Mohamed Farid Khamis initially studied accounting and worked at the National Bank of Egypt. But he left the country in 1967 after opposing the government and landed in Kuwait. There he became a carpet salesman, building a successful business importing rugs into the Middle East. As a buyer, Khamis purchased products from factories around the world and resold them regionally, giving him global perspectives on the industry. He eventually hatched plans to open a factory, which he did after returning home in 1979, thanks to Egyptian President Anwar
Oriental Weavers’ rugs and carpets are fashion items. The ultimate goal is getting customers to swap rugs every three to five years. Sadat’s open door policy.
His business instincts served him well. “He was a very big risk taker; he truly was an entrepreneur by the word,” says Yasmine. Their father planned to export immediately and R&D was a big focus, with Khamis spending aggressively on new technologies and always striving to double production. He eyed vertical integration too, which saw the establishment of the petrochemicals business to produce polypropylene, as it was a critical raw material for both his company and for Egypt’s plastics industry. His risk-averse ways also resulted in a real estate and tourism arm. “He’d buy land in specific
areas like the Red Sea, with no airports, to kind of tap into that demand,” recalls Farida. Meanwhile, for brand exposure, he pursued collaborations between Oriental Weavers and the likes of Bob Mackie, National Geographic, and Omar Sharif, among others.
In 1997, Khamis took Oriental Weavers public on the Egyptian stock exchange, further cementing him as a prominent local business mogul—a platform that he didn’t waste. Alongside serving in parliament, Khamis was passionate about giving back, resulting in an education foundation and the launch of the British University in Egypt in 1998, which today has over 11,000 students.
As this played out, his children were
growing up with the business. Yet, the sisters say their father never officially mandated they follow in his footsteps. He wasn’t the type to drag them to the office every day when they were young, although they did miss school every year to travel with him to a carpet industry exhibition. But, like many regional family firms, entering the company was a natural path. “It’s kind of always unspoken,” says Yasmine, who joined Oriental Weavers in 1999.
She had studied integrated marketing communication at the American University in Cairo and later took a course at New York’s Pratt Institute exploring color theory and design. She also spent time in North Carolina, a hub for U.S. textiles, studying industry basics. She then entered the family business with a desk in her father’s office so she could listen and learn. “I just started meddling in product development, meddling in marketing, working on websites, visiting the factory, visiting retail outlets,” she recalls. From there she held numerous executive positions and served as a director at its subsidiaries.
Meanwhile, Farida also attended the American University in Cairo, studying business administration. Sharing her father’s interest in finance and banking, she interned at Citibank in New York and also with Egyptian investment bank EFG Hermes before joining the firm in 2001. There she established an investor relations department and worked with the petrochemicals business from the beginning. Simultaneously, their brother Mohamed studied marketing at the British University in Egypt, held numerous company roles, and served as vice chair of the family’s real estate development arm.
Then, in September 2020, Khamis passed away at the age of 80, marking the end of an era. But even as his children instill new perspectives, his memory looms large. “First and foremost and the simplest of all, is to really keep his legacy,” says Yasmine. “We feel that we owe him that.” Looking back, Farida recalls a line from her father’s speeches at university graduations: he’d single out his work supporting the next generation, saying that the “most important factory that I built is the one producing men and women for Egypt.” As his children guide Oriental Weavers into the future, that sentiment rings true.
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Matriarchs
Yasmine and Farida are bucking a trend by leading their family business—the overwhelming majority of big Arab family groups have been handed down to male relatives. Of the Top 100 Arab Family Businesses 2022, only four are currently led by female successors. Oriental Weavers is one; here are the other three.
• Olayan Financing Company (OFC)
Country: Saudi Arabia Establishment: 1947 Chair of the Executive Committee and Deputy Chair: Lubna S. Olayan
• Easa Saleh Al Gurg Group (ESAG)
Country: U.A.E. Establishment: 1960 Chairperson and Managing Director: Raja Easa Al Gurg
• Mohsin Haider Darwish
Country: Oman Establishment: 1987 Chairpersons: Areej Mohsin Darwish and Lujaina Mohsin Darwish
The Element of Success
From profits and production to wideranging ESG efforts, Bahrain’s Alba is earning recognition and wellearned results as it prepares for a future of sustainable growth.
Since it began operations back in 1971, Alba has become one of the world’s largest aluminium smelters with more than 50 years of excellence in operations, safety, environment, and socioeconomic development. Last year alone, the company smelted more than 1.561 million metric tons (MT).
Starting off 2022 on a high note, Alba marked its golden jubilee by setting a new benchmark in its safety performance. On April 30, 2022, it topped 25 million safe working hours without lost time injury (LTI), and as of August 9, this number has increased to 29 million hours. In recognition of the company’s stellar safety record, Alba has received the Royal Society for the Prevention of Accidents (RoSPA) Gold Medal Award, for the ninth consecutive year.
The smelter’s safety standards come alongside another achievement, with the company exceeding 25 million MT in overall production to date. Alba’s financial performance has been notable too, with the company recording unmatched numbers, including $874.3 million in profit – a 127% year-on-year increase. Meanwhile, value added products (VAP) sales topped 70% in Q2 2022 for the first time in the Alba’s history, and the company’s Al Hassalah program achieved savings of $90.35 million, including $10 million one-off savings from working capital.
With the company standing in good financial stead, Alba has been pursuing a growth strategy which has seen it open a sales office in Singapore to strengthen its footprint in Asia and secure a 10-year offtake agreement with Australian mining and metals company, South32, for the supply of alumina.
In addition to business growth, Alba has also been focusing on sustainability. With the approval of the board of directors, Alba CEO, Ali Al Baqali, rolled out an environment, social, and governance (ESG) roadmap in April 2022, which underlined the company’s strong commitment to Bahrain’s objective of achieving net zero emissions by 2060, as well as to the United Nations Sustainable Development Goals (SDGs). Alba’s ESG roadmap highlights six strategic priorities: (1) decarbonization, (2) green energy and aluminum, (3) circular economy and secondary aluminum, (4) employee welfare, (5) collaboration and partnership, and (6) transparency, communications, and due diligence.
With the aim of delivering on its newly launched ESG roadmap, Alba’s initiatives thus far in 2022 are as follows:
Ali Al Baqali, CEO of Alba
Decarbonization
Alba has signed a full turnkey contract with Mitsubishi Power and SEPCOIII consortium to expand Power Station 5 at Alba. The contract involves the design, engineering, procurement, construction, and commission of a 680.9 megawatt (MW) combined cycle gas turbine power block, which will meet the company’s future decarbonization needs.
Alba has also inked a memorandum of understanding (MoU) with Mitsubishi Heavy Industries EMEA Ltd. to conduct a feasibility study on utilizing technology to capture CO₂ from flue gas, developed by MHI Group in collaboration with Kansai Electric Power Co. The aim is to reduce Alba’s plant emissions for decarbonization.
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Last year alone, the company smelted more than 1.561 million metric tons. Value added product sales topped 70% in Q2 2022 for the first time in Alba’s history.
Furthermore, to support the decarbonization drive in the Kingdom of Bahrain, Alba has announced financial backing of BD 134,000 ($355,448) for the National Initiative for Agricultural Development (NIAD) and the Supreme Council for the Environment’s efforts in the Ras Sanad Mangrove Nursery Project.
ESG
Alba and Bapco have joined forces to share knowledge and collaborate on implementing ESG initiatives of common interest through an MoU. The agreement will set the platform for a feasibility study on utilizing current and future developments relating to surplus hydrogen that Bapco will make available to Alba. It will also involve the formation of a joint taskforce to implement the agreed objectives between the two companies.
This year, Alba also became the first company in Bahrain to refinance its existing syndicated loan of approximately $1.25 billion, tied to sustainability targets. Additionally, it was recognized as the top company in Bahrain on the environmental, social, and governance ratings list by ESG Invest, the investment research arm of ‘Sustainability Excellence’.
Looking ahead
Now, as it looks to the last quarter of 2022, Alba remains committed to building sustainable returns, while also delivering further results to its shareholders. Among the company’s ambitious plans is the delivery on the newly launched ESG roadmap by embedding ESG into operations and processes and engaging with various stakeholders and partners on potential ESG initiatives to increase sustainability across the value chain.
In terms of production and business growth, Alba aims to exceed the 2022 production target of 1,560,000 MT and deliver on the Al Hassalah savings target of $100 million by the end of the year. It also intends to continue screening for potential upstream opportunities to secure 1/3 of alumina requirements, and to capitalize on the Aluminium Stewardship Initiative and EcoVadis certifications in order to penetrate new markets and increase VAP beyond 70% of sales.
Rounding out a busy and successful year, Alba plans to complete the financial closure of Power Station 5 Block 4, award its solar farm project, and progress with a pre-feasibility study for the company’s Line 7 smelter.
